Expanding venture capital to S.D. small businesses

An effort is underway to encourage South Dakota banks, investors and other to consider joining a program at the U.S. Small Business Administration to expand availability of venture capital.

The Small Business Investment Company, or SBIC, program is a multibillion dollar federal program to help provide financing for high-growth companies. SBICs are privately owned and managed investment funds that are licensed and regulated by the SBA. SBICs use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.

Javier Saade, associate administrator for the federal Office of Innovation and Investment met with a group of venture capitalists, investors, entrepreneurs and economic developers this week to further explain the program.

“The idea is to give these small companies another source of additional funding in a way that fills a gap that is sometimes difficult for our existing entities to fill,” Saade said.

The SBA will leverage investment dollars up to two dollars for every dollar of capital raised.

Hundreds of private equities firms are participating in the SBIC program nationwide but none in South Dakota, according to SBA regional administrator Matt Varilek.

“Now that we’ve made some of these connections and made this a priority, we’re hoping people will take a fresh look at the opportunity bearing in mind that their colleagues in these industries in other states are taking advantage of the program, making money for themselves and helping more small businesses than they otherwise could,” Varilek said.

Any existing investment firms or banks could apply to be the program or a new entity could be formed, he said.

“I think people are interested to explore it more based on this conversation because … changes have been made to make it more streamlined, more attractive,” Varilek said. “And I think knowing that people in other states are taking advantage of the program and making money with it — that’s proof the program works. We just need to find the right circumstances to make it work in more places.”

Businesses in South Dakota still can access capital through SBICs in other states, Saade added.

“But this is a place that should be using these tools,” he said. “If high users like New York, California and Massachusetts are using the programs, why isn’t South Dakota?”